Omitted Discount on Settlement Increases Capital

Steps:

• Sammy owed $200 but paid$90, entitling him to a $110 discount.
• Error: Recorded only $90 payment, leaving payables overstated at$110 and omitting discount income.
• Correction: Debit payables $110 to clear the debt fully; credit discount received$110 as income.
• Effects: Bank unchanged (payment already recorded); capital rises by $110; payables fall by$110.

Why D is correct:

• Discounts received are treated as income under accrual accounting, directly increasing owner's capital in the statement of financial position.

Why the others are wrong:

• A: Bank decreased with initial payment, but correction has no further bank impact.
• B: Bank not increased; payment outflow was already recorded.
• C: Reverses actual effects—capital rises, payables fall, not the opposite.

Final answer: D